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Money launderers may have to prove innocence
February, 19th 2007

Tax evaders should now get ready to face the music. The government is considering bringing in stringent provisions to curb tax evasion through the laundering route. The new tightened provisions could be unveiled in the new simplified income-tax law to be introduced in the Budget session of Parliament.

At present, when a money launderer is caught, the onus of evidence is on the income-tax department. The government now wants to shift the onus of evidence on the guilty and bring in special rules of evidence. The provisions would be modelled on the lines of the ones practiced internationally. The government is also looking at tweaking prosecution procedures, a source said.

A popular modus operandi to evade taxes is hawala, under which evaders open a large number of bank accounts or float bogus companies to circulate funds that may be coming from outside the country or to convert black money into white. Since the income-tax department is working on a new law, Direct Tax Code, there is a strong view that certain existing provisions with regard to evidence and prosecution should be tightened to give the law more teeth.

There is no specific provision in the existing law defining fraudulent transactions. In fact, India, which is joining the Financial Action Task Force (FATF) on money laundering as an observer may have to bring in changes in key laws to become compliant. The provisions would be tweaked in a manner that a genuine assessee does not get impacted and only wilful defaulters are caught and effectively dealt with.

Today, any unaccounted for money or expenditure can be added to the total income for which there are specific sections under the Income-Tax Act such as sections 68, 69, 69A and 69B. Specifically, if an assessing officer discovers cash credits, unexplained investments, money, expenditure, jewellery or other assets for which no satisfactory explanation has been provided by the tax payer, then all these can be added to the income and 100-330 times penalty can be imposed. In specific cases, prosecution can also be launched. However, prosecution is rare and, if launched, time consuming.

There are sufficient powers with the income-tax department within the current provisions to tax the unexplained money, investments and expenditures in case satisfactory explanation is not offered by a tax payer, KPMG director Vikas Vasal said.

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